Pound US Dollar (GBP/USD) Exchange Rate Jumps as Liz Truss Resigns
(Updated 14:45, 20/10/22) The Pound US Dollar (GBP/USD) exchange rate rebounded strongly today. After touching a weekly low of $1.1169, GBP/USD then surged to hit a high of $1.1307, a rise of over 1.2%.
The recovery came amid a broad-based weakness in the US Dollar (USD), as an improving market mood weighed on the safe-haven ‘Greenback’.
Meanwhile, Sterling may have enjoyed a surprising boost from the Bank of England’s (BoE) Ben Broadbent. Normally, currencies rise when markets expect higher interest rates from the respective central banks. However, today the Pound (GBP) rose after Broadbent dampened rate rise bets.
Broadbent signalled that markets are pricing far more rate rises than BoE modelling suggests is necessary. Following his speech, markets pared back their expectations for a jumbo 1% rate hike at the BoE’s November meeting.
Rather than hurting Sterling, this seems to have cheered GBP investors. Expectations of higher interest rates have pushed up government bond yields in recent months, creating financial instability and inflating the cost of government debt. Broadbent’s speech saw bond yields decline, which in turn will make it easier for the UK government to balance the books in its Halloween fiscal plan.
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Interestingly, the Pound managed to sustain its gains even as it became clear that Liz Truss was resigning as Prime Minister. Markets seemed somewhat relieved that the instability of her premiership was coming to an end.
However, more instability will almost certainly follow, as the Conservative Party must now elect a new leader – the third UK PM this year. As political turmoil continues in the UK, expect more volatility in the Pound.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Falls as PM Faces Calls to Resign
After eking out some modest gains in overnight trade, the Pound US Dollar (GBP/USD) exchange rate is back on the defensive this morning. The political uncertainty in the UK continues, with some analysts questioning whether Prime Minister Liz Truss can survive the day.
At the time of writing, GBP/USD is trading at $1.1179, down almost 0.5% from an overnight high of $1.1233.
Pound (GBP) Down as Political Instability Continues
The Pound (GBP) is under pressure once again today following fresh political turmoil at Westminster.
Yesterday, the embattled PM Liz Truss put up a fight at PMQs. Although her premiership hangs by a thread, Truss was combative and confident.
However, the relative calm in UK politics did not last long. Truss suspended Jason Stein, one of her key advisers, pending an investigation into hostile briefings against Sajid Javid and other Tory MPs.
Shortly after this, Home Secretary Suella Braverman resigned, ostensibly for having broken the ministerial code. Braverman used her resignation letter to fire a parting shot at the PM.
There was then a chaotic vote in the House of Commons on the government’s fracking bill. Rumours swirled, with allegations of bullying and manhandling alongside confusion over whether the chief whip and deputy chief whip had resigned.
This morning, Truss’s premiership is looking as precarious as ever. Political instability is bad for the Pound, so the ongoing turmoil is government is weighing on GBP.
US Dollar (USD) Muted amid Mixed Market Mood
Meanwhile, the safe-haven US Dollar (USD) is subdued this morning amid a modest uptick in risk appetite. Although equity markets are mixed, currency traders seem to be flocking to riskier, higher-yielding assets and abandoning the ‘Greenback’. Nevertheless, USD is firming against GBP.
The improvement in sentiment comes despite ongoing concerns about the Russia-Ukraine war. Moscow is seemingly pursuing a scorched-earth approach, using kamikaze drones in devastating attacks on civilian and energy infrastructure, causing blackouts across Ukraine.
In addition, markets remain concerned about slowing global growth, higher interest rates, and the risk of financial turmoil in the UK. As a result, the mixed market mood could turn sour.
GBP/USD Exchange Rate Forecast: Sterling to Waver amid Political Chaos?
UK politics remains the focus for GBP investors today. After last night’s chaos, the next 24 hours could prove vital for Liz Truss’s survival. If she can quell MPs’ anger and restore some semblance of calm, this could remove a headwind for Sterling.
However, if the political instability continues, the Pound could face further losses. Any moves to oust Truss, ministerial resignations, or confusion over policy could spook UK markets. Overall, the uncertainty could cause some volatility in GBP exchange rates today.
As for the US Dollar, the latest initial jobless claims report is the first event of note today. Markets expect unemployment claims to remain low, but a surprise fall or rise could boost or dent the Dollar, respectively.
Later in the evening we have four Federal Reserve officials due to make speeches. If the policymakers maintain their hawkish stance, USD could climb.
In the meantime, risk appetite will likely drive the US Dollar.